Trade in China: ACLE

12 October 2018

Late August saw the 20th anniversary of the All China Leather Exhibition, held in Shanghai. While the trading floor was busy as usual, concerns remain over a slowdown of domestic output and the impact of the ongoing US-China trade war. Ross Davies reports from the event.

2018 has been a year of milestones for the Chinese leather industry. It marks the 30th anniversary of the launch of the China Leather Industry Association (CLIA), which is tasked with overseeing improvements across the country’s tanning sector; and this coincided with the 20th anniversary of the All China Leather Exhibition (ACLE), which was held in Shanghai on 29–31 August.

Much akin to China’s economy at large, the country’s leather sector is almost unrecognisable from the one of 1998, when ACLE was first held in Beijing. Then, the country was just beginning its ascent to becoming the world’s biggest footwear manufacturer.

As we’ve come to expect from what has become one of the industry’s hotticket events, the 92,000m² trading floor of the Shanghai New International Expo Centre was bustling, with over 22,000 buyers in attendance, visiting the 1,087 exhibitors flaunting their wares, of which 70% were domestic.

Leather International was once again in the thick of it, intuiting the usual bonhomie among punters from across the globe t. However, there was no getting around the prevailing mood: the Chinese leather industry has had it easier. While there are abundant supplies of raw materials available to the tanning industry, demand is wanting. According to CLIA, over four million hides have been sold this year but are yet to be shipped to US warehouses. Cattle on feed numbers are reportedly 8–9% higher than they were last year.

By the same token, buoyant performances in the automotive and furniture segments have not been enough to deflect attention away from plummeting demand for shoe leather. China may well be the globe’s biggest footwear manufacturer, but demand continues to fall, as it has done for the past three years.

Politics of the trade

The elephant in the room this year was undoubtedly the ongoing tit-fortat trade war between the US and China, as orchestrated by presidents Trump and Xi. At the event, US and Chinese manufacturers and suppliers spoke of their dismay of the status quo and a need for a speedy resolution. Such unpredictability is not good for business, they argued.

Trump’s proposed tariff list includes a number of leather and industryrelated items, including belts, bags and furniture – although footwear is yet to be targeted.

There was little evidence of antipathy to be found here, however, with one US exhibitor, who requested anonymity, praising CLIA for being “on the same page” as its US counterparts. “We’re as concerned as they are,” agreed another Chinese supplier, who also asked not to be named.

On its rounds, Leather International ran into Steve Sothmann, president of the US Hide, Skin and Leather Association, who recently contributed an op-ed to Leather International on the challenges thrown up by the current impasse. Sothmann echoed the sentiment of the aforementioned exhibitors, reserving commendation for CLIA for its handling of the crisis thus far.

“They’re really concerned about everything that’s been going on,” said Sothmann. “That’s actually one of the good things that has come out of all of this – we are working closer with them than ever before.”

Time will tell how the dispute will unravel, but Sothmann said he was bracing himself for more tariffs to be rolled out before the end of the year. In the event of this happening, it is highly likely China’s footwear shipments to the US will take a further hit – as will US hide and leather exports in the opposite direction.

This situation has also been exacerbated by the recent boom in demand for sneakers, synthetics-based production and an oversupply of bovine hides from the meat industry, which has forced prices to levels not felt since the financial crisis of the last decade.

We are not going to emphasise the by-product and oppose the plastics all the time. We are going to make leather cool again.

– Fernando Bellese, JBS Couros

Cause for optimism

But it’s not all doom and gloom. While Chinese footwear exports may be down, the country’s domestic automotive sector carries huge potential. According to official figures, over 24 million new passenger vehicles were sold, which, claims Leather Naturally’s Mike Redwood, could spell out “the biggest opportunity for auto leather seating that has ever existed”.

The Leather Naturally Zone was thronged for much of the event, with the interactive area hosting various designer workshops and talks. On the second day, the pro-leather industry initiative gave an overview of its intentions to better attract designers, stylists and young consumers.

Speaking in front of a sizeable audience at a Leather Naturally networking event, JBS Couros’ Fernando Bellese summed this theme up, saying, “It is global; it is digital; it is to talk to Gen Y and Gen Z; it is to reconnect them with leather. We are not going to emphasise the by-product and oppose the plastics all the time. We are going to make leather cool again.”

The message seemed to resonate; although, there was one contingent conspicuous in their absence from the room: Chinese tanners.

Traversing the trading floor, Leather International also noted an impressive number of Vietnamese exhibitors and visitors. The South East Asian country has made big strides in its footwear output in recent years, manufacturing 404 million pairs of leather shoes in 2017 alone.

While still far behind China’s output – according to CLIA, China produced 4.48 billion during the same period – Vietnam’s progress is far from negligible. Or as one CLIA spokesperson grudgingly put it: “respectable”.

Some of the event’s busier stands belonged to the European players, including Dutch chemical manufacturer Smit & zoon, which presented a new collection of leather articles, in addition to a new edition of its ‘Product Passport’ guide, which offers tanneries an overview of the impact of chemicals on leather and the surrounding environment.

New faces and old problems

Stahl’s stand was similarly standingroom only. Leather International had the chance to briefly catch up with CEO Huub van Beijeren, who revealed the appointment of a new CFO at the company. Having been at the helm of Stahl’s finances since 2012, Bram Drexhage is retiring, and is to be replaced by Frank Sonnemans, currently employed by manufacturing company Kendrion. The move will become effective in mid-2019.

When conversation turned to China, Van Beijeren conceded market conditions were “not so good”, but this has not diverted Stahl from being on course to open a new Centre of Excellence for performance coatings in Suzhou, which is set to open its doors in November.

As the fair wound down on the third and final day, forecasts over future trading conditions resumed – ranging from the cautiously optimistic to the inescapably gloomy. One Chinese trader Leather International spoke to argued there had been recent evidence of an upturn, albeit slight, coupled with a small uptick in prices. But as another put it, “As long as this trade war goes on, we’ll worry.”

Is such despondency justifiable? After all, while the Chinese leather industry might be experiencing a slowdown, it’s hardly a fallen giant. Journalists in attendance at the press conference on the opening day were treated to an array of figures and statistics that suggest things might not be as bad as they seem.

Profits and revenues may be slowing down, but they remain positive. While output for the first half of 2018 was down 11.4% year on year, footwear manufacturing alone, claims CLIA, is actually up by 3.2% over last year, hitting two billion pairs by June. Going on the downturn in exports, this suggests that domestic consumption of homemade footwear is up.

The CLIA are really concerned about everything that’s been going on. That’s actually one of the good things that has come out of this trade dispiute – we are working closer with them than ever before.– Steve Sothmann, US Hide, Skin and Leather Association

Returning to the current trade dispute, on the face of it, this is a binary Sino-American affair. However, it goes deeper than that. As Sothmann wrote in our September issue, “all of this leaves the global leather industry in a massive predicament”.

The next few months will be testing times, but with any luck, talk of ongoing trade wars will be a distant memory when ACLE reopens its doors in 2019.

This year’s ACLE was an event of mixed fortunes.

The Chinese leather industry has changed beyond recognition during ACLE’s 20 years.

The ongoing US-China trade dispute was the hot topic on everyone’s lips.

ACLE is a major event in the calender for Chinese leather, and all the main players were in attendance.

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